Friday, August 12, 2011

EDITORIAL >>Black eye for lottery

Everyone, including the people who run the Arkansas lottery, is entitled to a measure of forbearance in dealing with the Internal Revenue Service, but it is hard to countenance ignorance or sheer ineptness by people who are paid for their expertise.

Ernie Passailaigue, the director of the lottery, notified his commissioners this week that the lottery owed the IRS $100,000 in penalties for twice not remitting taxes by the deadline. The lottery must withhold federal income taxes on lottery winnings and remit them to the IRS, just as employers do with employee withholding and just as individual taxpayers and businesses do with quarterly estimates. Everyone knows there is a penalty for late payment, by even a day, unless you have applied to pay late. Passailaigue said his staff disbursed the money to the IRS late by one day both times.

The lottery’s chief fiscal officer is responsible for remitting the taxes and, according to his account, he and the IRS simply had a misunderstanding about when the tax remittances were due. He was pretty confident that when he or Passailaigue or someone else got the right person on the phone at the IRS, the agency would waive the penalty. After all, the IRS had agreed to waive the penalties when the lottery missed the deadlines four times during the 2010 fiscal year.

Last year? That robs Passailaigue and his minions of much sympathy. We are impressed that they persuaded someone at the IRS, which is not known for its softheartedness, to forget about penalties even one time, but it should not have been forgotten.

Even at that, we could say that it was much ado about very little except for two things.

If the lottery pays the IRS $100,000, or more when the issue is finally settled, that is 22 scholarships that will not be awarded—or 44 scholarships for students at two-year colleges and technical schools.

Second, this is only the latest in a long string of financial miscues by the lottery staff, who we were told were the best in the world at what they did. When the voters amended the Constitution to permit a lottery and the legislature created it, the lottery commissioners leaped at the chance to hire the director of the South Carolina lottery and his top assistants. They learned that they could hire Passailaigue for $324,000, only $97,000 more than the impoverished state of South Carolina was paying him. He brought in his top assistants, all at huge salary increases. The Constitution and the legislature gave the lottery commission virtual carte blanche to pay people under whatever terms they considered provident. Arkansas would begin with a highly experienced and competent staff.

The lottery sold its first tickets slightly ahead of when other states got under way, but after that there has been little about the operation to impress. Scholarship revenues came in at well under projections, legislative auditors discovered numerous irregularities in compensation, expense accounts and simple accounting procedures. The lottery’s auditor and chief fiscal officer was unable to produce a simple accounting report using standard accounting procedures and it had to contract with someone outside the agency to do it.

Gov. Beebe, as he has on previous occasions, expressed dismay at this failure. Two new lottery commissioners were mortified at the development.

The problem goes back to the founding. The lottery should have been treated like any other government agency, subject to the same strict accounting, personnel and auditing rules that govern public offices. It should not be a separate and independent branch of government. The legislature is hamstrung by an improvidently written Constitution, but it should do the best it can to bring the agency under control.